Hurting Canadian oil producers signal further cuts to come

Thu Nov 12, 2015 2:22pm EST
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By Nia Williams

CALGARY, Alberta Nov 12 (Reuters) - Canadian energy companies, especially those at higher cost oil sands producers, are signalling they will cut capital spending for a second straight year in 2016 as they adjust to a painful new reality of oil near $40 a barrel.

Energy executives, coming off a bleak third-quarter earnings season and due to roll out capital budgets in coming weeks, were in a grim mood even before the United States last week rejected TransCanada Corp's proposed Keystone XL pipeline that would have been key in boosting exports of heavy oil from the landlocked oil sands.

"The initial forecast would be for a reduction (in capital spending) of 10 to 20 percent for next year," said Eric Nuttall, portfolio manager at Sprott Asset Management, which hold about C$55 million ($41.37 million) in energy stocks.

"More companies will be spending within cash flow, that's the discipline being forced onto them by credit markets, equity markets and their banks."

The seven biggest Canadian producers cut 2015 capital spending by 39 percent, or a combined C$12 billion, from last year according to a Conference Board of Canada report.

Of those seven, so far only Cenovus Energy Inc and Canadian Natural Resources Ltd have outlined 2016 budgets.

Cenovus estimates capital spending between C$1.5-C$2.0 billion versus C$1.8-$1.9 billion in 2015. Chief Executive Brian Ferguson said if oil prices hold around $45 a barrel, the company will spend roughly C$1.5 billion in 2016, less in 2017 and keep some oil sands project expansions on hold.

Canadian Natural expects to spend between C$4.5-C$5.0 billion next year, down from 2015's C$5.44 billion.   Continued...